Employment Taxes for Household Employees

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Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but how they do it.

If you pay a household employee cash wages of $1,400 or more in the year 2004, you generally must withhold social security and Medicare taxes from all cash wages you pay to that employee. (Cash wages include wages you pay by check or money order.) Unless you prefer to pay your employee's share of social security and Medicare taxes from your own funds, you should withhold 7.65% (6.2% for social security tax and 1.45% for Medicare tax) from each payment of cash wages. Instead of paying this amount to your employee, pay it to the IRS with a matching amount for your share of the taxes. If you pay your employee's share of social security and Medicare taxes from your own funds, these amounts must be included in the employee's wage for income tax purposes. However, they are not counted as social security and Medicare wages or as Federal unemployment wages. However, do not withhold or pay these taxes from wages you pay to:
  1. your spouse,
  2. your child who is under age 21,
  3. your parent, unless an exception is met; or
  4. an employee who is under age 18 at any time during the year unless performing household work is the employee's principal occupation. If the employee is a student, providing household work is not considered to be his or her principal occupation.

You are not required to withhold Federal income tax from wages you pay to a household employee. However, if your employee asks you to withhold Federal income tax and you agree, you will need Form W-4 (PDF), Employee's Withholding Allowance Certificate, and Publication 15, (Circular E), Employer's Tax Guide, which has tax withholding tables.

If you withhold or pay social security and Medicare taxes, or withhold Federal income tax, you will need to file Form W-2 (PDF), Wage and Tax Statement after the end of the year. You will also need a Form W-3 (PDF), Transmittal of Wage and Tax Statement. To complete Form W-2 you will need both an employer identification number and your employee's social security number. If you do not already have an employer identification number (EIN), one can be requested by submitting Form SS-4 (PDF), Application for Employer Identification Number, or electronically, by accessing the "Businesses" link on the IRS website at www.irs.gov and clicking on "Employer ID Numbers" under "Related Topics". IRS assistors will provide you with an EIN via the phone if you cannot use the Internet application. Call 1-800-829-4933 from 7:00 a.m. to 10:00 p.m. Refer to Form W-2 - Where, When, and How to File and Employer Identification Number (EIN) - How to Apply for further information.

If you paid cash wages to household employees totaling $1,000 or more in any calendar quarter of 2003 or 2004, you generally must pay Federal unemployment tax on the first $7,000 of cash wages you pay to each of your household employees in 2004 and 2005.

If you must file Form W-2 or pay Federal unemployment tax, you will also need to file a Form 1040, Schedule H (PDF), Household Employment Taxes, after the end of the year with your individual income tax return, Form 1040 (PDF), U.S. Individual Income Tax Return. However, a sole proprietor who must file Form 940 (PDF), Employer's Annual Federal Unemployment (FUTA) Tax Return, and Form 941 (PDF), Employer's Quarterly Federal Tax Return, for business employees, or Form 943 (PDF), Employer's Annual Tax Return for Agricultural Employees, for farm employees, may include household employee tax information on these forms.

You can avoid owing tax with your return if you pay enough Federal income tax before you file, to cover both the employment taxes for your household employee and your income tax. If you are employed, you can ask your employer to withhold more Federal income tax from your wages during the year. You can also make estimated tax payments to the IRS during the year or increase the payments you already make. Use Form 1040-ES (PDF) to make estimated tax payments.

You may have to pay an estimated tax penalty if you do not prepay your household employment taxes during the year. Refer to Topics Estimated Tax and Penalty for Underpayment of Estimated Tax.

For more information, refer to Publication 926, Household Employer's Tax Guide.

Source: IRS.gov

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